Microsoft Word - 1-Title TOC 2014 - Draft to MGO 9-16-2014 - SB 9
16 14 TRBCALIFORNIA INFRASTRUCTURE GUARANTEE TRUST FUND, ENTERPRISE
FUNDS OF THE
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK
(A Component Unit of the State of California)
COMPREHENSIVE ANNUAL FINANCIAL REPORT
Fiscal Unit
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CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK FUND AND
CALIFORNIA INFRASTRUCTURE GUARANTEE TRUST FUND,
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
FOR THE FISCAL YEAR ENDED JUNE 30, 2014
TABLE OF CONTENTS PAGE
FINANCIAL SECTION
Fund Financial Statements
Statement of Net Position 21
Statement of Revenues, Expenses, and Change in Fund Net Position
22
Statement of Cash Flows 23
Notes to the Financial Statements 25
STATISTICAL SECTION
Financial Trends
Schedule of Net Position 44
Schedule of Revenues, Expenses, and Change in Fund Net Position
46
Infrastructure State Revolving Fund (ISRF) Program
Ten Largest Borrowers 49
Schedule of ISRF Program Loans Receivable and Interest Rates
50
Debt Capacity
Schedule of Statutory Debt Limit Capacity 52
Schedule of Outstanding ISRF Program Bonds and Related Debt Ratio
54
Schedule of Aggregate Pledged Resources Coverage
for ISRF Program Bonds 57
Demographics and Economic Information
California Employment by Industry 61
Operating Information
Major Program Activity 64
INTRODUCTORY SECTION
California Infrastructure and Economic Development Bank
September 24, 2014
To the Board of Directors:
I am pleased to submit the Comprehensive Annual Financial Report
(CAFR) of the California Infrastructure and Economic Development
Bank Fund and the California Infrastructure Guarantee Trust Fund,
enterprise funds of the California Infrastructure and Economic
Development Bank (IBank), a component unit of the State of
California, for the fiscal year ended June 30, 2014. This report
includes the financial activities of IBank’s Infrastructure State
Revolving Fund (ISRF) Program and Conduit Bond Program included in
the California Infrastructure and Economic Development Bank Fund
(CIEDB Fund) and the California Infrastructure Guarantee Trust Fund
(Guarantee Trust Fund) (collectively, the CIEDB Fund and the
Guarantee Trust Fund are the Funds). The continuing disclosure
agreements related to IBank’s revenue bonds that provided funding
for the ISRF Program (ISRF Program Bonds) require annual audited
financial statements and this CAFR fulfills that requirement.
The net position of the Funds was $281,695,761 as of June 30, 2014,
all of which was restricted. Net position increased by $3,177,137
over the previous fiscal year directly as a result of positive
earnings from operating and nonoperating activities. Embracing this
momentum and to further improve the Funds’ financial position,
IBank is in the process of enhancing its current programs and
developing new programs and financing instruments to confront the
infrastructure and economic development funding requirements of a
wider spectrum of State and local governments and communities
within the State. In addition, the State and local governments
continue to delay much-needed infrastructure projects vital to
fueling the State’s economic engine. The limits on available funds
and financings continue to restrict the infrastructure and economic
expansion projects that are needed to improve the quality of life
throughout the State and are vital to the continued preservation of
California’s infrastructure. IBank is uniquely positioned to be a
major contributor to the success of the State’s economic
revitalization.
Management assumes full responsibility for the completeness and
reliability of the information contained in this report, based upon
a comprehensive framework of internal control that is established
for this purpose. Because the cost of internal control should not
exceed anticipated benefits, the objective is to provide
reasonable, rather than absolute, assurance that the financial
statements are free of any material misstatements.
Macias Gini & O’Connell LLP has issued an unmodified (“clean”)
opinion on the Funds’ financial statements for the year ended June
30, 2014. The independent auditor’s report is located at the front
of the financial section of this report. Management’s discussion
and analysis (MD&A) immediately follows the independent
auditor’s report and provides a narrative introduction, overview
and analysis of the financial statements. The MD&A complements
this letter of transmittal and should be read in conjunction with
it.
3
Profile of IBank
The California Infrastructure and Economic Development Bank was
established in 1994 to promote economic revitalization, enable
future development, and encourage a healthy climate for jobs in
California. The California Infrastructure and Economic Development
Bank operates pursuant to the Bergeson-Peace Infrastructure and
Economic Development Bank Act contained in the California
Government Code section 63000 et seq. The California Infrastructure
and Economic Development Bank is a component unit of the State of
California located within the Governor’s Office of Business and
Economic Development (GO-Biz) and is governed by a five-member
Board of Directors.
IBank has broad authority to issue tax-exempt and taxable revenue
bonds, provide financing to public agencies and certain tax-exempt
non-profit organizations that are sponsored by public agencies,
provide credit enhancements, including guarantees, acquire or lease
facilities, and leverage State and Federal funds. IBank's current
programs include the ISRF Program, 501(c)(3) Revenue Bond Program,
Industrial Development Revenue Bond Program, Exempt Facility
Revenue Bond Program and Public Agency Revenue Bond Program. The
Small Business Loan Guarantee Program (SBLGP) became a program of
the California Infrastructure and Economic Development Bank during
the 2013-14 fiscal year; however, the SBLGP’s financial activities
are not included in this report.
With the exception of funds for program support and the SBLGP
administration, which must be annually appropriated by the State
Legislature, all IBank funds are continuously appropriated without
regard to fiscal year. Continuous appropriation authority means
that no further appropriations are necessary to expend funds held
in either the CIEDB Fund or the Guarantee Trust Fund.
Economic Condition
California’s economy has rebounded well adding over 1 million jobs
to recover all of the jobs lost during the recession. In 2013,
California led all states for private sector job growth and the
unemployment rate declined to the lowest point in over 5 years. Job
growth has been led by strong gains in construction, trade and
transport, retail, agriculture and high tech. Likewise, industries
that have traditionally struggled in California have started to see
gains. The manufacturing industry has added jobs for three straight
years which is the first time the state has had consecutive years
of manufacturing job gains in over a decade. California’s gross
state product is over $2.2 trillion and the state is once again the
8th largest economy having surpassed Russia and Italy. Some
economists predict that by mid-year 2015, California could be the
6th largest economy as the state’s economy closes in on the UK and
France.
Interest in the ISRF Program continues to grow with stronger
borrowers and more diverse projects. While some of the ISRF
Program’s local government borrowers continue to experience
financial challenges, all required repayments were made by the
borrowers on ISRF Program Loans during the fiscal year and
continued timely repayment is expected.
We anticipate more interest in IBank’s programs as the economy
rebounds and prospective borrowers are better positioned to finance
the public infrastructure and private development projects that
were postponed during the recession. I am pleased to report that
both Fitch Ratings and Standard & Poor’s assigned their
respective “AAA” long-term rating to the California Infrastructure
and Economic Development Bank ISRF
4
California Infrastructure and Economic Development Bank
Program Bonds and noted that the outlook is stable. These strong
ratings reflect the ISRF Program’s extremely strong financial risk
score and very strong enterprise risk score.
Long-term Financial Planning
The California Infrastructure and Economic Development Bank’s
priorities for the upcoming years include but are not limited to
the following: providing funding priority to existing and postponed
infrastructure projects, creating sector-specific financing
instruments and funds, developing public-private investment
opportunities, and facilitating state-wide outreach to potential
customers for all of IBank’s programs. These priorities will
provide access to more affordable funds for California
infrastructure and economic development while maintaining the
Funds’ positive net position.
Awards and Acknowledgements
The Government Finance Officers Association of the United States
and Canada (GFOA) awarded a Certificate of Achievement for
Excellence in Financial Reporting to the California Infrastructure
and Economic Development Bank for its comprehensive annual
financial report for the fiscal year ended June 30, 2013. This was
the third consecutive year that the California Infrastructure and
Economic Development Bank has achieved this prestigious award. In
order to be awarded a Certificate of Achievement, a government must
publish an easily readable and efficiently organized comprehensive
annual financial report. This report must satisfy both generally
accepted accounting principles and applicable legal
requirements.
A Certificate of Achievement is valid for a period of one year
only. We believe that our current comprehensive annual financial
report continues to meet the Certificate of Achievement Program’s
requirements and we are submitting it to the GFOA to determine its
eligibility for another certificate.
I wish to acknowledge the staff of the California Infrastructure
and Economic Development Bank for their consistent dedication and
contribution to the success of the organization. In particular, I
acknowledge the Fiscal Unit staff for the preparation of this
Comprehensive Annual Financial Report.
Respectfully submitted,
5
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
FOR THE FISCAL YEAR ENDED JUNE 30, 2014
ORGANIZATION CHART
Bond Unit
(SBLGP) Unit
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
FOR THE FISCAL YEAR ENDED JUNE 30, 2014
PRINCIPAL OFFICIALS
IBank Board of Directors
Michael E. Rossi, Chair, Senior Advisor for Jobs and Business to
the Governor of
California, Delegate of the Director, Governor’s Office of Business
& Economic
Development
Michael Cohen, Director of the Department of Finance
Peter Luchetti, Governor’s Appointee
IBank Executive and Management Staff as of August 25, 2014
Teveia Barnes, Executive Director
Marilyn Muñoz, General Counsel
Vacant, Bond Unit Manager
Vacant, Fiscal Unit Manager
11
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of the California Infrastructure and
Economic Development Bank Sacramento, California
Report on the Financial Statements
We have audited the accompanying financial statements of the
California Infrastructure and Economic Development Bank Fund and
California Infrastructure Guarantee Trust Fund (collectively, the
Funds), enterprise funds of the California Infrastructure and
Economic Development Bank (IBank), a component unit of the State of
California, as of and for the fiscal year ended June 30, 2014, and
the related notes to the financial statements, as listed in the
table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation
of these financial statements in accordance with accounting
principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained
in Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control.
Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the
Funds as of June 30, 2014, and the changes in their financial
position and their cash flows for the fiscal year then ended in
accordance with accounting principles generally accepted in the
United States of America.
11
Emphasis of Matter
As described in Note 2 to the financial statements, the financial
statements present only the Funds and do not purport to, and do not
present fairly the financial position of IBank as of June 30, 2014,
the changes in its financial position, or, where applicable, its
cash flows for the fiscal year then ended in accordance with
accounting principles generally accepted in the United States of
America. IBank’s California Small Business Expansion Fund, its only
other fund, is included in and subject to the audit of California’s
financial statements. Our opinion is not modified with respect to
this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of
America require that the management’s discussion and analysis, as
listed in the table of contents, be presented to supplement the
fund financial statements. Such information, although not a part of
the fund financial statements, is required by the Governmental
Accounting Standards Board, who considers it to be an essential
part of financial reporting for placing the fund financial
statements in an appropriate operational, economic, or historical
context. We have applied certain limited procedures to the required
supplementary information in accordance with auditing standards
generally accepted in the United States of America, which consisted
of inquiries of management about the methods of preparing the
information and comparing the information for consistency with
management’s responses to our inquiries, the fund financial
statements, and other knowledge we obtained during our audit of the
fund financial statements. We do not express an opinion or provide
any assurance on the information because the limited procedures do
not provide us with sufficient evidence to express an opinion or
provide any assurance.
Other Information
Our audit was conducted for the purpose of forming an opinion on
the fund financial statements. The introductory and statistical
sections are presented for purposes of additional analysis and are
not required parts of the fund financial statements.
The introductory and statistical sections have not been subjected
to the auditing procedures applied in the audit of the fund
financial statements, and accordingly, we do not express an opinion
or provide any assurance on them.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also
issued our report dated September 24, 2014, on our consideration of
IBank’s internal control over financial reporting as it relates to
the Funds and on our tests of its compliance with certain
provisions of laws, regulations, contracts, and grant agreements
and other matters. The purpose of that report is to describe the
scope of our testing of internal control over financial reporting
and compliance and the results of that testing, and not to provide
an opinion on internal control over financial reporting or on
compliance. That report is an integral part of an audit performed
in accordance with Government Auditing Standards in considering
IBank’s internal control over financial reporting and compliance,
as it relates to the Funds.
Sacramento, California September 24, 2014
12
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
MANAGEMENT’S DISCUSSION & ANALYSIS FOR THE FISCAL YEAR ENDED
JUNE 30, 2014
Introduction
The following Management’s Discussion & Analysis (MD&A)
provides an overview to the financial statements of the California
Infrastructure and Economic Development Bank Fund and California
Infrastructure Guarantee Trust Fund, enterprise funds of the
California Infrastructure and Economic Development Bank (IBank), a
component unit of the State of California, a description of its
activities, and an analysis of the financial position of the
California Infrastructure and Economic Development Bank Fund (CIEDB
Fund) and the California Infrastructure Guarantee Trust Fund
(Guarantee Trust Fund) for the fiscal year ended June 30, 2014
(collectively, the CIEDB Fund and the Guarantee Trust Fund are the
Funds). The information presented in this section should be read in
conjunction with the information in our letter of transmittal on
pages 3-5 of this report and the financial statements and notes
that follow this section.
IBank and Current Programs
The California Infrastructure and Economic Development Bank is a
State of California financing authority whose mission is to finance
public infrastructure and private development that promote a
healthy climate for jobs, contribute to a strong California
economy, and improve the quality of life in California communities.
The California Infrastructure and Economic Development Bank has
broad authority to issue tax-exempt and taxable revenue bonds,
provide financing to public agencies, provide credit enhancements,
including guarantees, acquire or lease facilities, and leverage
State and Federal funds. The Funds’ current operations are funded
solely from fees, interest earnings, and Infrastructure State
Revolving Fund Program loan1 repayments. The California
Infrastructure and Economic Development Bank is a component unit of
the State of California (State) and the Funds’ financial statements
are included in the State’s Comprehensive Annual Financial
Report.
IBank’s major programs include the Infrastructure State Revolving
Fund (ISRF) Program, which is a revolving loan program that
provides financing to local government entities for eighteen
categories of public infrastructure and economic expansion
projects, and a variety of conduit revenue bond financing programs,
including the Industrial Development Bond Program for manufacturing
and processing companies, the 501(c)(3) Revenue Bond Program for
nonprofit public benefit corporations, State School Fund Bond
Program and the Public Agency Revenue Bond Program for governmental
entities. Conduit bonds issued by IBank are a limited obligation of
IBank payable solely from the revenues generated by the underlying
borrower. The Small Business Loan Guarantee Program (SBLGP), which
issues guarantees to lenders of loans to small businesses having
difficulty securing financing on their own, was established as a
program of the California Infrastructure and Economic Development
Bank in October 2013. However, the SBLGP program’s financial
activities and position are not included in this report.
1 “Loan” is generically used to refer to a loan, a lease or an
installment sale agreement. 13
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK FUND AND
CALIFORNIA INFRASTRUCTURE GUARANTEE TRUST FUND,
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED) FOR THE FISCAL
YEAR ENDED JUNE 30, 2014
Financial Highlights 2013-2014
Net position increased by $3,177,137 to $281,695,761 during the
fiscal year due to earnings from operations and investment
income.
Total cash, cash equivalents, and investments increased during the
fiscal year by $49,395,157 or 52.72% as a result of proceeds
received from the issuance of the 2014A ISRF Program Bonds and loan
repayments exceeding loan disbursements and bond debt service
payments.
Total pledged and non-pledged loans receivable decreased during the
fiscal year by $22,945,204 because scheduled loan repayments and an
unscheduled loan payoff exceeded new loans closed during the fiscal
year.
Total operating revenues were $12,147,744 for the fiscal year, an
increase of $448,729 or 3.84% over the previous fiscal year due to
increased interest on loans receivable and increased administration
fee revenue.
Total operating expenses were $9,189,187 during the fiscal year
compared to $8,438,168 for the prior fiscal year, an increase of
8.90%. The increase in operating expenses is mostly due to the cost
of issuing the 2014A ISRF Program Bonds.
Interest on revenue bond debt was $5,031,074 during the fiscal
year, a decrease of $348,608 or 6.48% from the previous fiscal
year. The decrease is attributable to the decreased balance of
revenue bonds payable that existed for most of the fiscal year
until the issuance of the 2014A ISRF Program Bonds in
February.
Investment income, a nonoperating revenue, was $218,580 for the
fiscal year, an increase of $6,278 over the prior fiscal year, due
to increased interest earnings.
Overview of the Financial Statements
The financial section of this annual financial report consists of
this MD&A, the financial statements, and the notes to the
financial statements. This MD&A is a discussion of many aspects
of the Funds’ operations and financial status and its information
was compiled from the Funds’ financial statements and accompanying
notes.
The financial statements have been prepared using the economic
resources measurement focus and accrual basis of accounting in
accordance with generally accepted accounting principles and
include the following three statements:
The Statement of Net Position presents information on the assets,
liabilities and deferred inflows/outflows of resources of the
Funds, with the difference reported as net position. Over time,
increases or decreases in net position are expected to serve as a
useful indicator of whether the financial position of the Funds are
improving or deteriorating.
The Statement of Revenues, Expenses, and Change in Net Position
presents information reflecting how the net position of the Funds
changed during the fiscal year. All changes in net position are
reported as soon as the underlying event giving rise to the change
occurs, regardless of the timing of the cash flows. Thus, revenues
and expenses are reported in the statement for some items that will
only result in cash flows in future fiscal periods.
The Statement of Cash Flows reports the cash flows from operating
activities, noncapital financing activities and investing
activities, and the resulting impacts to cash and cash equivalents
for the fiscal year.
14
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED) FOR THE FISCAL
YEAR ENDED JUNE 30, 2014
The financial statements included in this annual financial report
are those of IBank’s CIEDB Fund and Guarantee Trust Fund. As
discussed in Note 1, The Financial Reporting Entity, the financial
statements herein are intended to present the financial position,
change in financial position and cash flows of only IBank’s ISRF
Program and Conduit Bond Program. The financial statements do not
purport to present the financial position of the Small Business
Loan Guarantee Program or any other reporting entity.
The Notes to the Financial Statements provide additional
information that is essential to a full understanding of the data
provided in the financial statements. These notes can be found
immediately following the financial statements.
Statement of Net Position
The net position of the Funds was $281,695,761 as of June 30, 2014,
all of which was restricted. Net position increased by $3,177,137
over the previous fiscal year directly as a result of positive
earnings from operating and nonoperating activities.
The following table presents a condensed, combined Statement of Net
Position as of June 30, 2014 and 2013, and the dollar and
percentage change from the prior year.
2014 2013 $
Program loans receivable
864,910
439,560,712 $
281,695,761
439,560,712 $
278,518,624
412,870,311
3,177,137
$ 26,690,401
1.14%
6.46%
Assets
Total assets increased by $25.8 million over the prior year. Cash,
cash equivalents, and investments-- restricted increased as a
result of cash received from the issuance of the 2014A ISRF Program
Bonds whose proceeds were used to refund previously outstanding
ISRF Program Bonds and to refinance existing bond anticipation
loans.
15
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED) FOR THE FISCAL
YEAR ENDED JUNE 30, 2014
ISRF Program loans receivable (both pledged and non-pledged)
totaled $291,868,218 as of June 30, 2014, a decrease of $22,945,204
from the prior year as scheduled loan repayments and an unscheduled
loan payoff exceeded the amount of loan closings during the fiscal
year.
Deferred Outflow of Resources
The issuance of the 2014A ISRF Program Bonds resulted in a loss on
the advance refunding of the 2004 and 2005 ISRF Program Bonds. That
loss of $896,045, which represents the difference between the
amount placed in escrow to repay the refunded bonds and the net
carrying value of those bonds, was established as a deferred
outflow of resources and will be amortized as an adjustment to
interest expense over the remaining life of the refunded
bonds.
Liabilities
Total liabilities were $157,864,951 as of June 30, 2014, an
increase of 17.50% over the prior fiscal year. The largest
liability is revenue bonds payable, which consists of two series of
ISRF Program Bonds, one issued in 2008 and one issued in February
2014. Revenue bonds payable increased by $22.8 million over the
prior year because the amount of 2014A ISRF Program Bonds issued
was greater than the outstanding balance of the 2004 and 2005 ISRF
Program Bonds that were refunded from the proceeds of the 2014A
ISRF Program Bonds.
Statement of Revenue, Expenses, and Change in Net Position
Operating income was $2,958,557 for the fiscal year ending June 30,
2014. The following table presents the condensed, combined
Statement of Revenues, Expenses, and Change in Net Position for the
2013-2014 and 2012-2013 fiscal years.
2013-2014 2012-2013 $
Administration fees 1,726,297 1,428,048 298,249 20.89%
Total operating revenues 12,147,744 11,699,015 448,729 3.84%
Total operating expenses 9,189,187 8,438,168 751,019 8.90%
Operating income 2,958,557 3,260,847 (302,290) -9.27%
Nonoperating revenue 218,580 212,302 6,278 2.96%
Change in net position 3,177,137 3,473,149 (296,012) -8.52%
Net Position, Beginning of year 278,518,624 275,045,475 3,473,149
1.26%
Net Position, End of year $ 281,695,761 $ 278,518,624 $ 3,177,137
1.14%
16
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED) FOR THE FISCAL
YEAR ENDED JUNE 30, 2014
Revenues
The following chart presents Operating and Nonoperating revenues by
source:
Revenues by Source Fiscal Year 2013-2014
$10,421,447 84% $1,726,297
Interest on loans receivable Administration fees Investment
Income
Total operating revenue, which includes interest on loans
receivable and administration fees, increased 3.84% over the prior
fiscal year. Interest on loans receivable and loan administration
fees increased because an ISRF Program borrower paid off early its
loan balance during the fiscal year, including unpaid interest and
fees. Administration fees also increased as a result of more
conduit bond sales and more ISRF Program Loans during the fiscal
year. Nonoperating revenue consists of investment income of
$218,580 for the fiscal year. Investment income increased during
the fiscal year from increased yield earned on investments.
17
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED) FOR THE FISCAL
YEAR ENDED JUNE 30, 2014
Operating Expenses
$5,031,074 55%
$4,158,113 45%
Interest on Bond Debt Program Support
Total operating expenses were $9,189,187 during the fiscal year, an
8.90% increase over the prior fiscal year.
The interest on ISRF Program Bonds of $5,031,074 represents the
largest operating expense category and accounts for 55% of total
operating expenses, and was $348,608 less than the prior fiscal
year. The decrease is directly related to the decreased balance of
revenue bonds payable that existed during most of the fiscal year
until the issuance of the 2014A ISRF Program Bonds. Program
support, which represents 45% of total operating expenses,
increased over the prior fiscal year by $1,099,627. The increase in
program support expenses is primarily due to the cost of issuing
the 2014A ISRF Program Bonds.
Budgetary Information
With the exception of funds for program support, which must be
annually appropriated by the State Legislature, all other IBank
funds in the Funds are continuously appropriated without regard to
fiscal year. Continuous appropriation authority means that no
further appropriations are necessary to expend funds held in either
the CIEDB Fund or the Guarantee Trust Fund.
18
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED) FOR THE FISCAL
YEAR ENDED JUNE 30, 2014
Debt Administration
IBank administers the ISRF Program, a leveraged revolving loan
program. Initial ISRF Program Loans were funded with previous State
General Fund appropriations. IBank issued $51.37 million in ISRF
Program Revenue Bonds in March 2004, $52.80 million in December
2005, $48.37 million in September 2008, and $95.96 million in
February 2014 (collectively, ISRF Program Bonds) to provide
additional funding for ISRF Program Loans. The 2014A ISRF Program
Bonds were issued to refund the 2004 and 2005 ISRF Program Bonds
and to refinance existing bond anticipation loans. The ISRF Program
Bonds were sold without a credit enhancement, and in 2004 and 2005,
were initially rated AA, Aa2, and AA by Standard & Poor’s,
Moody’s Investors Service, and Fitch Ratings, respectively. Upon
the issuance of the 2008 ISRF Program Bonds, Standard & Poor’s
and Fitch Ratings raised the ratings on the ISRF Program Bonds to
AA+, citing proactive and strong program oversight and management,
and thorough ongoing surveillance of existing Loans as key factors
to the high credit ratings on the bonds. The 2014A ISRF Program
Bonds were assigned a rating of AAA, Aa1, and AAA by Standard &
Poor’s, Moody’s Investors Service, and Fitch Ratings, respectively,
with outlook stable. These strong ratings reflect the ISRF
Program’s extremely strong financial risk score and very strong
enterprise risk score. In addition, these strong ratings reflect
the ISRF Program’s ability to withstand defaults by the ISRF
Program’s borrowers while the ISRF Program could continue to pay
the ISRF Program’s bondholders. During the fiscal year, Standard
& Poor’s reaffirmed their AA+ rating and Moody’s Investor
Service reaffirmed their Aa2 rating of the 2008 ISRF Program
Bonds.
Existing ISRF Program Loans are either funded from previous State
General Fund appropriations, interest earnings, the repayment of
principal on ISRF Program loans receivable, investment earnings,
administration fee revenue, or the proceeds of ISRF Program Bonds.
The 2008 ISRF Program Bonds are structured under a master-series
model and the 2014A ISRF Program Bonds are structured under an
open-indenture model. Both are limited obligations of IBank payable
solely from and secured solely by pledged ISRF Program Loan
repayments, reserves, and reserve account interest earnings. Note 5
of the Notes to the Financial Statements contains additional
information about the outstanding ISRF Program Bonds.
IBank also issues conduit revenue bonds including Industrial
Development Bonds for certain privately- owned manufacturing and
processing businesses, 501(c)(3) Revenue Bonds for nonprofit
entities, State School Fund Bonds for financially troubled public
school districts, and Public Agency Revenue Bonds for other state
and local governmental entities. During the fiscal year, IBank
served as the issuer for $735,423,063 of conduit revenue bonds.
Conduit bonds are a limited obligation of IBank payable solely from
the pledged revenues of the conduit borrower. As such, except for
administration fee revenue related to the conduit bond programs,
conduit bond financial information is not reflected in the Funds’
financial statements.
Economic Condition and Outlook
California’s economy has rebounded well, adding over 1 million jobs
to recover all of the jobs lost during the recession. In 2013,
California led all states for private sector job growth and the
unemployment rate declined to the lowest point in over 5 years. Job
growth has been led by strong gains in construction, trade and
transport, retail, agriculture and high tech. Likewise, industries
that have traditionally struggled in California have started to see
gains. The manufacturing industry has added jobs for three straight
years which is the first time the state has had consecutive years
of manufacturing job gains in over a decade.
19
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED) FOR THE FISCAL
YEAR ENDED JUNE 30, 2014
California’s gross state product is over $2.2 trillion and the
state is once again the 8th largest economy having surpassed Russia
and Italy. Some economists predict that by mid-year 2015,
California could be the 6th largest economy as the state’s economy
closes in on the UK and France.
January 17, 2014 marked the beginning of the official drought in
California when Governor Brown issued his drought proclamation. The
drought has affected the State differently throughout the regions
yet most communities have instituted stringent water rationing.
Southern California relied on lessons learned from the 1970s and
1990s droughts and was prepared with water conservation, recycling
plans, new reservoirs and ground water banks. California’s
industrial and agricultural industries and the quality of life for
all residents depend upon reliable and affordable water
supplies.
The first quarter of 2014 experienced an unemployment rate of 8.1
percent and then fell sharply to 7.8 percent in April. The rate is
expected to fall and reach 7.2 percent by the end of 2014.
California Employment Development Department reported that
California added 447,400 nonfarm payroll jobs in 2013 and 1.3
million jobs from the end of the recession through April 2014. The
LA County Economic Development Corporation’s Kyser Center for
Economic Research reported in the February 2014 Economic Forecast
that more than 1.3 million jobs between December 2007 and January
2010 were lost in the State. However, nearly all of the jobs lost
in California during the recession have now been recovered, with
technology, tourism and retail trade leading the recovery in job
growth in recent years.
The 2014-2015 economic forecast for California remains strong and
resilient with private sector jobs gains, steady decline in
unemployment rate, housing and construction improving, together
with leisure and hospitality, health services, and professional and
business services.
Interest in the ISRF Program continues to grow with stronger
borrowers and more diverse projects. While some of the ISRF
Program’s local government borrowers continue to experience
financial challenges, all required repayments were made by the
borrowers on ISRF Program Loans during the fiscal year and
continued timely repayment is expected.
The Funds do not receive any on-going State General Fund support
and their programs continued to provide revenues sufficient to
support all operating expenses.
Requests for Information
This financial report is designed to provide interested parties
with a general overview of the finances of the Funds. Questions
concerning the information provided in this report or requests for
additional information should be addressed to Teveia Barnes,
Executive Director, California Infrastructure and Economic
Development Bank, P.O. Box 2830, Sacramento, California
95812-2830.
20
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
STATEMENT OF NET POSITION JUNE 30, 2014
California Infrastructure and California
Fund Fund Total ASSETS AND DEFERRED OUTFLOWS CURRENT ASSETS
Cash and equivalents - restricted 108,854,004 $ 24,640,678 $
133,494,682 $ Pledged loans receivable - disbursed 13,369,403 -
13,369,403 Non-pledged loans receivable - disbursed 241,748 -
241,748 Interest and other receivables 3,733,031 13,989
3,747,020
Total current assets 126,198,186 24,654,667 150,852,853
NON-CURRENT ASSETS Investments - restricted 9,585,882 - 9,585,882
Pledged loans receivable - disbursed 266,743,892 - 266,743,892
Pledged loans receivable - undisbursed 6,562,703 - 6,562,703
Non-pledged loans receivable - disbursed 4,950,472 -
4,950,472
Total non-current assets 287,842,949 - 287,842,949
Total assets 414,041,135 24,654,667 438,695,802
DEFERRED OUTFLOWS OF RESOURCES Loss on refunding debt 864,910 -
864,910
Total deferred outflows of resources 864,910 - 864,910
TOTAL ASSETS AND DEFERRED OUTFLOWS 414,906,045 $ 24,654,667 $
439,560,712 $
LIABILITIES AND NET POSITION CURRENT LIABILITIES
Accounts payable 1,132,801 $ -$ 1,132,801 $ Compensated absences
payable 14,278 - 14,278 Other liabilities 15,960 - 15,960 Revenue
bond interest payable 2,251,099 - 2,251,099 Revenue bonds payable
5,000,000 - 5,000,000 Undisbursed loan commitments 5,898,082 -
5,898,082
Total current liabilities 14,312,220 - 14,312,220
NON-CURRENT LIABILITIES Compensated absences payable 162,404 -
162,404 Net other postemployment benefit obligation 1,218,000 -
1,218,000 Undisbursed loan commitments 664,621 - 664,621 Revenue
bonds payable 141,507,706 - 141,507,706
Total non-current liabilities 143,552,731 - 143,552,731
Total liabilities 157,864,951 - 157,864,951
NET POSITION Restricted - Expendable:
Statute 257,041,094 24,654,667 281,695,761
TOTAL LIABILITIES AND NET POSITION 414,906,045 $ 24,654,667 $
439,560,712 $
The accompanying notes are an integral part of these financial
statements. 21
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK FUND AND
CALIFORNIA INFRASTRUCTURE GUARANTEE TRUST FUND,
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN FUND NET POSITION
FOR THE FISCAL YEAR ENDED JUNE 30, 2014
OPERATING REVENUES Interest on loans receivable Administration
fees
Total operating revenues
Total operating expenses
California Infrastructure and
Economic Development Bank
9,189,187
- 2,958,557
58,334
58,334
58,334
24,596,333
24,654,667 $ $
218,580
218,580
3,177,137
278,518,624
281,695,761
The accompanying notes are an integral part of these financial
statements. 22
CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK FUND AND
CALIFORNIA INFRASTRUCTURE GUARANTEE TRUST FUND,
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
STATEMENT OF CASH FLOWS FOR THE FISCAL YEAR ENDED JUNE 30,
2014
CASH FLOWS FROM OPERATING ACTIVITIES Receipt of interest on loans
receivable Receipt of administration fees Receipt of principal on
loans receivable Payment of outstanding loan commitments Payment of
program support
Net cash provided by operating activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Receipt of revenue bond proceeds Payment to advance refund escrow
agent Payment of principal on revenue bond debt Payment of interest
on revenue bond debt
Net cash used for noncapital financing activities
CASH FLOWS FROM INVESTING ACTIVITIES Receipt of interest on
investments
Net cash provided by investing activities
CHANGE IN CASH AND EQUIVALENTS
CASH AND EQUIVALENTS, Beginning of year
CASH AND EQUIVALENTS, End of year
RECONCILIATION OF OPERATING INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES Operating income Adjustments
to reconcile operating income to net cash provided by operating
activities:
Interest on revenue bond debt Underwriter's discount paid directly
from bond proceeds Changes in assets and liabilities:
Loans receivable Interest and other receivables Accounts payable
Other liabilities Compensated absences payable Net other
postemployment benefit obligation Undisbursed loan
commitments
NET CASH PROVIDED BY OPERATING ACTIVITIES
NONCASH FINANCING AND INVESTING ACTIVITIES Amortization of revenue
bond premiums Amortization of deferred outflow of resources Bond
proceeds paid directly to advance refund escrow agent Accrued
interest on refunded revenue bonds Unrealized loss on
investments
California Infrastructure and
Economic Development Bank
212,214
The accompanying notes are an integral part of these financial
statements. 23
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CALIFORNIA INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK FUND AND
CALIFORNIA INFRASTRUCTURE GUARANTEE TRUST FUND,
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE
30, 2014
1. THE FINANCIAL REPORTING ENTITY
The California Infrastructure and Economic Development Bank, a
component unit of the State of California (State), is a public
instrumentality of the State, organized and existing pursuant to
the Bergeson- Peace Infrastructure and Economic Development Bank
Act, constituting Division 1 of Title 6.7 of the California
Government Code commencing with Section 63000 (Act). The California
Infrastructure and Economic Development Bank has broad authority to
issue tax-exempt and taxable revenue bonds, provide financing to
public agencies, provide credit enhancements, including guarantees,
acquire or lease facilities, and leverage State and Federal funds.
The mission of the California Infrastructure and Economic
Development Bank is to finance public infrastructure and economic
expansion projects that promote a healthy climate for job creation
and retention, contribute to a strong California economy, and
improve the quality of life in California communities. The
California Infrastructure and Economic Development Bank is governed
by a five-member Board of Directors (Board) consisting of a
delegate of the Director of the Governor’s Office of Business and
Economic Development, who serves as the chair, the Director of the
Department of Finance, the State Treasurer, the Secretary of the
State Transportation Agency, and an appointee of the
Governor.
The California Infrastructure and Economic Development Bank (IBank)
issues loans to municipal entities pursuant to the Infrastructure
State Revolving Fund (ISRF) Program, the activities of which are
accounted for in the California Infrastructure and Economic
Development Bank Fund (CIEDB Fund) and the California
Infrastructure Guarantee Trust Fund (Guarantee Trust Fund)
(collectively, the CIEDB Fund and the Guarantee Trust Fund are the
Funds), enterprise funds of IBank. The ISRF Program provides
financing to local government entities for a wide variety of
infrastructure projects throughout the State. Eligible ISRF Program
borrowers include cities, counties, special districts, assessment
districts, joint power authorities, non-profit corporations formed
by local government entities, and non-profit organizations
sponsored by a governmental entity. IBank issues revenue bonds
(ISRF Program Bonds) to provide additional funding for the ISRF
Program. The ISRF Program Bond indentures require an independent
audit of the ISRF Programs. IBank also serves as a conduit issuer
of revenue bonds, loans, and commercial paper for private,
nonprofit and other governmental entities (Conduit Bond Programs),
the activities of which are also accounted for in the Funds.
Legislation requires an audit of IBank’s activities under the
Conduit Bond Program.
Effective October 4, 2013, the Small Business Financial Assistance
Act of 2013 transferred the California Small Business Expansion
Fund, which accounts for the activities of the California Small
Business Loan Guarantee Program (SBLGP), to the California
Infrastructure and Economic Development Bank. The SBLGP provides
repayment guarantees to lenders of loans to small businesses having
difficulty securing financing on their own. The guarantees are
issued by non-profit financial development corporations, on behalf
of the California Infrastructure and Economic Development Bank, to
banks and other lenders to help small business owners finance their
business plans, including expanding operations, purchasing new
equipment and infusing small businesses with working capital.
Guarantees may also be issued on loans for start-up cost. The
California Small Business Expansion Fund is not included in these
financial statements.
25
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION / FUND FINANCIAL STATEMENTS
The financial statements presented in this report include only the
financial activities of the Funds and do not purport to, and do not
present fairly the financial position of IBank as of June 30, 2014,
the changes in its financial position, or, where applicable, its
cash flows for the fiscal year then ended in accordance with
accounting principles generally accepted in the United States of
America. IBank’s California Small Business Expansion Fund, its only
other fund, is included in and subject to the audit of California’s
financial statements.
Monies in the Funds are held within the California State Treasury
or by the bond trustees for the ISRF Program Bonds
(Trustees).
CIEDB Fund – With the exception of amounts spent for program
support that require an annual appropriation by the State
Legislature, the CIEDB Fund is continuously appropriated without
regard to fiscal year and is available for expenditure for the
program related purposes stated in the Act. The CIEDB Fund is an
enterprise fund.
Guarantee Trust Fund – The Guarantee Trust Fund is continuously
appropriated to IBank without regard to fiscal year for the purpose
of insuring all or a portion of the accounts and subaccounts within
the CIEDB Fund, any contracts or obligations of IBank or a sponsor,
as that term is defined in the Act, and all or a part of any series
of bonds issued by IBank, by a special purpose trust or by a
sponsor. Uncommitted monies may be transferred between the CIEDB
Fund and the Guarantee Trust Fund when appropriate to accomplish
the financing objectives of IBank. The Guarantee Trust Fund is an
enterprise fund.
B. ACCOUNTING PRINCIPLES
The accompanying financial statements have been prepared using the
economic resources measurement focus and accrual basis of
accounting in accordance with accounting principles generally
accepted in the United States of America as applied to governmental
agencies. The Governmental Accounting Standards Board (GASB) is the
accepted standard-setting body for establishing governmental
accounting and financial reporting principles.
The Funds distinguish operating revenues and expenses from
nonoperating items. Operating revenues and expenses generally
result from providing financial services in connection with
principal ongoing operations. The primary operating revenue
reported in the Funds is financing income, representing interest on
loans provided to ISRF Program borrowers. Also recognized in the
Funds as operating revenue are the fees charged to ISRF Program
borrowers and Conduit Bond Programs borrowers. Operating expenses
primarily include interest expense on the ISRF Program Bonds and
program support expenses. Investment income is reported as
nonoperating revenue.
26
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
C. CASH AND EQUIVALENTS, AND INVESTMENTS
IBank considers all short-term investments with an original
maturity of three months or less to be cash equivalents. Cash and
investments held in either the State’s Surplus Money Investment
Fund (SMIF), an internal investment pool, money market deposit
accounts or funds held by the Trustees are considered to be highly
liquid and cash equivalents. All investments are stated at fair
value in the Statement of Net Position. All investment income,
including changes in the fair value of investments, is recognized
as revenue in the Statement of Revenues, Expenses, and Change in
Net Position.
In accordance with GASB Statement No. 40, Deposit and Investment
Risk Disclosures (Amendment of GASB No. 3), certain disclosure
requirements, if applicable, for deposits and investment risks are
specified relating to the following risks: interest rate, credit,
custodial credit, concentrations of credit and foreign currency. In
addition, other disclosures are specified including, but not
limited to, the use of certain methods to present deposits and
investments, highly sensitive investments and credit quality at
year-end.
D. LOANS RECEIVABLE
IBank enters into loan agreements, installment sale agreements and
lease agreements (Loans) to finance public infrastructure projects
and projects for non-profit organizations sponsored by governmental
entities pursuant to the ISRF Program. A majority of the Loans are
pledged to the 2014A ISRF Program Bonds. Additional Loans are
pledged to the 2008 ISRF Program Bonds or their related Master
Indenture. Loans receivable includes pledged and non-pledged Loans.
Pledged and non-pledged Loans receivable consists of two components
– the disbursed and the undisbursed amount of Loans. The disbursed
amount of pledged Loans receivable includes amounts drawn by the
borrower for reimbursement or payment of project costs. The
undisbursed amount of pledged Loans receivable includes the balance
available to be drawn by the borrowers and draws submitted for
payment but unpaid at year-end, and is offset by a liability for
outstanding undisbursed loan commitments. The current portion of
undisbursed pledged and non-pledged Loan commitments is an estimate
and is generally based upon projections provided by borrowers.
These estimates are subject to change due to unforeseen weather
conditions, construction delays related to change orders, delayed
material shipment, subcontractor performance problems and other
factors that cannot be reasonably predicted.
Prior to the issuance of the ISRF Program Bonds, Loans were funded
solely by General Fund appropriations received from the State, Loan
repayments, fee revenue, and investment income. Since the issuance
of the ISRF Program Bonds, Loans have been funded from the proceeds
of the ISRF Program Bonds and/or from proceeds of Loan repayments,
fee revenue and investment income. There is no provision for
uncollectible accounts as all Loans are current and expected at
this time to be repaid according to the scheduled terms.
27
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
E. ISSUANCE COSTS
Costs associated with the issuance of each series of the ISRF
Program Bonds included bond counsel fees, trustee fees, rating
agency fees, underwriting costs, financial advisor fees and other
miscellaneous expenses. The ISRF Program bond issuance costs are
recognized as an expense when incurred.
F. REVENUE BONDS PAYABLE
Revenue bonds payable are stated at their unpaid balance plus any
remaining unamortized premiums. Bond premiums are amortized using
the effective-interest method over the terms of the respective ISRF
Program Bonds. The ISRF Program Bonds are subject to mandatory and
optional redemption prior to their stated maturity. The ISRF
Program Bonds are not obligations of the State, and the taxing
power of the State is not pledged for their payments. The
obligation of IBank to make such payments is a limited obligation,
payable solely from the ISRF Program Bonds collateral pledged by
IBank.
G. LOAN AND CONDUIT BOND FEES
IBank charges an origination fee and an annual servicing fee to
ISRF Program borrowers. The origination fee is due upon execution
of the Loan agreement and is collected no later than the date of
the borrower’s first disbursement. Loan origination fees are
recognized as revenue when due. The annual servicing fee is
recognized as revenue when earned. IBank also charges application,
bond issuance and annual fees to Conduit Bond Programs borrowers.
Conduit bond fees are recognized as revenue when earned.
H. COMPENSATED ABSENCES PAYABLE
Compensated absences payable represents employees’ earned but
unused vacation, annual leave, and other similar leave program
balances which are eligible for payment upon separation from state
service. Unused sick-leave balances are not included as they are
converted to additional service credit used in the calculation of
postemployment benefits. Compensated absences payable is a
long-term obligation because leave earned in the current period is
considered to be used before any unused leave from prior years
(LIFO) and it is anticipated that employees will not generally use
more leave than the amount earned in the current period. The
current portion of the obligation represents the amount payable for
separations expected to occur in the next fiscal year.
I. CLASSIFICATION OF NET POSITION
Restricted net position represents amounts restricted due to
external restrictions imposed by creditors, laws or regulations of
the government, and restrictions imposed by law through
constitutional provisions or enabling legislation. The net position
reported in the Funds is restricted by statute for programs
established by IBank and for programs administered pursuant to the
Act.
28
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
J. USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
reporting date and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. CASH AND EQUIVALENTS, AND INVESTMENTS
IBank follows GASB Statement No. 40, Deposit and Investment Risk
Disclosures. This statement requires the disclosure of the interest
rate, credit, custodial credit, concentration of credit and foreign
currency risks to the extent that they exist at the date of the
Statement of Net Position. Additional disclosure detail required by
GASB Statement No. 40 for cash deposits, investments, and
derivatives within the State’s centralized treasury system can be
found in the State’s Comprehensive Annual Financial Report for the
year ended June 30, 2013, which is the latest available.
Due to the specified nature of the activities reported in the Funds
as established in the Act, all cash, cash equivalents, and
investments are considered restricted at June 30, 2014, since these
funds cannot be spent for any purpose other than as established in
the Act.
Investments are made pursuant to an investment policy initially
adopted by the Board in March 2006 and as amended by the Board on
April 27, 2010 (Investment Policy). The Investment Policy was
reviewed by the Board in May 2013 with minor changes. The
Investment Policy provides guidelines for the prudent investment
while maximizing efficiency and financial return in conformance
with all applicable State statutes governing the investment of
public funds, with the foremost objectives being safety and
liquidity.
Pursuant to the Investment Policy, IBank may, from time to time,
direct the State Treasurer (Treasurer) to invest monies in the
CIEDB Fund and Guarantee Trust Fund held within the State’s
centralized treasury system that are not required for its current
needs, in any eligible securities specified in Government Code
Section 16430 as IBank shall designate. IBank may direct the
Treasurer to invest monies in the Guarantee Trust Fund in certain
repurchase agreements, investment agreements and subordinated
securities as specified in Government Code Section 63062(a). IBank
may direct the Treasurer to deposit monies in the Funds in
interest-bearing accounts in qualified public depositories as
established by State law, including any bank in the State or in any
savings and loan association in the State. IBank may alternatively
require the transfer of monies in the Funds to the SMIF for
investment.
Government Code Sections 63052(e), 63062(b) and 5922(d) provide
that bond proceeds and monies set aside and pledged to the
repayment of bonds may be invested in securities or obligations
described in the indenture for those bonds. Monies held by the
Trustees in each of the accounts under the 2008 ISRF Program Bonds
Indenture, the 2008 Master Indenture, and the 2014A ISRF Program
Bonds Indenture shall be invested and reinvested by the respective
Trustees in permitted investments, as that term is defined in the
respective indentures, which mature or are subject to redemption by
the owner thereof prior to the date such funds are expected to be
needed.
29
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
3. CASH AND EQUIVALENTS, AND INVESTMENTS (Continued)
Investments Authorized by the California Government Code and the
Investment Policy
The following table identifies the investment types that are
authorized by Government Code sections 16430, 5922(d), 63052(d) and
(e), and 63062(a) and (b) or the Investment Policy, where more
restrictive. The table below also identifies certain provisions of
the California Government Code, or the Investment Policy, where
more restrictive, that address interest rate risk, credit risk, and
concentration of credit risk. This table does not address
investments of debt proceeds and other monies held by the Trustees
that are governed by the provisions of the 2008 ISRF Program Bonds
Indenture and its related Master Indenture or the 2014A ISRF
Program Bonds Indenture, but rather the general provisions of the
California Government Code or the Investment Policy.
Authorized Investments
Maximum Maximum Maximum Percentage of Investment in Credit
Authorized Investment Type Maturity1 Portfolio One Issuer
Rating3
U.S. Treasury Securities 5 Years N/A2 N/A N/A Federal Agency
Securities 5 Years N/A 30% N/A State of California Securities 5
Years N/A 30% N/A Local Agency Securities 5 Years 30% 10% N/A
Commercial Paper 180 Days 30% 10% A1/P1/F1 Bankers Acceptances 180
Days 40% 10% N/A Negotiable Certificates of Deposit 5 Years N/A 10%
N/A U.S. SBA or U.S. FHA Securities 5 Years 25% N/A N/A
Export-Import Bank Securities 5 Years 10% N/A N/A Guaranteed
Student Loan Program
5 Years 10% N/A N/A Securities Development Bank Securities 5 Years
N/A 10% N/A Corporate Debt Securities 5 Years 30% 10% A
1 Where the Investment Policy does not specify a maximum remaining
maturity at the time of the investment, no investment shall be made
in any security, other than a collateral security underlying a
repurchase agreement or collateral for an investment agreement,
which at the time of the investment has a term remaining to
maturity in excess of five years.
2 N/A means neither the Government Code nor the Investment Policy
sets a limit. 3 A rating by any nationally recognized rating agency
will meet this requirement. The nationally recognized rating
agencies
include Standard & Poor’s (S&P), Moody’s Investors Services
(Moody’s), and Fitch Ratings (Fitch) (collectively, Rating
Agencies).
Investments Authorized by the ISRF Program Bond Series Indentures
or the Master Indenture
Investment of debt proceeds and Loan repayments that are held by
the Trustees are governed by the provisions of the 2008 ISRF
Program Bonds Indenture and its related Master Indenture and the
2014A ISRF Program Bonds Indenture. Such investments are referenced
in the Investment Policy, which references Government Code sections
63052(e) and 5922(d).
30
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
3. CASH AND EQUIVALENTS, AND INVESTMENTS (Continued)
Authorized Investments
Maximum Maximum Maximum Percentage of Investment in Credit
Authorized Investment Type Maturity1 Portfolio One Issuer
Rating3
U.S. Treasury Securities 5 Years N/A2 N/A N/A Federal Agency
Securities 5 Years N/A 30% N/A Commercial Paper 180 Days 30% 10%
A-2/P-2/F2 Bankers Acceptances 180 Days N/A N/A A-3/P-3/F3
Negotiable Certificates of Deposit 5 Years N/A N/A A U.S. SBA or
U.S. FHA Securities 5 Years N/A N/A N/A Export-Import Bank
Securities 5 Years N/A N/A N/A Guaranteed Student Loan
Program
5 Years N/A N/A N/A Securities Development Bank Securities 5 Years
N/A N/A N/A Corporate Debt Securities 5 Years N/A N/A A Surplus
Money Investment Fund N/A N/A N/A N/A Repurchase Agreements 5 Years
N/A N/A A Guaranteed Investment Contract 5 Years N/A N/A AA
Collateralized Forward Purchase
5 Years N/A N/A A Agreements Money Market Funds N/A N/A N/A
Am
1 The Investment Policy authorizes investing bond reserve funds and
bond revenue funds beyond five years if prudent in the opinion of
the Executive Director.
2 N/A means neither the Government Code nor the Investment Policy
sets a limit. 3 As rated by each of S&P, Moody’s and
Fitch.
IBank has invested excess cash reported in the Funds held within
the State’s centralized treasury system in SMIF. All of the
resources in SMIF are invested through the Pooled Money Investment
Account (PMIA). The PMIA investment program is designated by the
Pooled Money Investment Board and is administered by the
Treasurer.
Cash and equivalents at June 30, 2014 were as follows:
Cash on Hand $ 16,500 Surplus Money Investment Fund
56,070,220
Money Market Funds 8,940,802 Money Market Deposit Accounts
68,467,160
Total Cash and Equivalents $ 133,494,682
31
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
3. CASH AND EQUIVALENTS, AND INVESTMENTS (Continued)
IBank has invested a portion of the monies set aside for ISRF
Program Bond repayment that are held by the Trustees in federal
agency bonds maturing on March 13, 2015.
Investments in federal agency bonds at June 30, 2014 were as
follows:
Face Value Cost Fair Value
Federal Agency Bonds $ 9,415,000 $ 9,576,013 $ 9,585,882
Deposit and Investment Risk Disclosures
Interest Rate Risk. Interest rate risk is the risk that the value
of fixed income securities will decline because of rising interest
rates. The prices of fixed income securities with a longer time to
maturity, measured by weighted average to maturity, tend to be more
sensitive to changes in interest rates and, therefore, more
volatile than those with a shorter duration. Information about the
sensitivity of the fair values of the investments to market
interest rate risk fluctuations is provided by the following table
that shows the weighted-average to maturity of each
investment.
Weighted - Average to
Investment Maturity
Surplus Money Investment Fund $ 56,070,220 232 days Money Market
Funds 8,940,802 37 days Federal Agency Bonds 9,585,882 274
days
Total Cash Equivalents and Investments $ 74,596,904
Credit Risk. Generally, credit risk is the risk that an issuer of
an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a
nationally recognized statistical rating organization. Presented in
the table below is the minimum rating required by, and where
applicable, the California Government Code, the Investment Policy
or the ISRF Program Bond Series Indenture along with the
investment’s actual rating as of year-end for each investment
type.
Minimum Rating as of Investment Legal Rating Year End1
Surplus Money Investment Fund $ 56,070,220 N/A Not Rated Money
Market Funds 8,940,802 Am AAAm/Aaa-mf Federal Agency Bonds
9,585,882 N/A AA+/Aaa
Total Cash Equivalents and Investments $ 74,596,904
1 As rated by each of S&P and Moody’s, respectively.
32
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
3. CASH AND EQUIVALENTS, AND INVESTMENTS (Continued)
Custodial Credit Risk. Custodial credit risk for deposits is the
risk that, in the event of the failure of a depository financial
institution, IBank will not be able to recover its deposits or will
not be able to recover collateral securities that are in the
possession of an outside party. As of June 30, 2014, the Funds
reported $68,467,160 in money market deposit accounts with U.S.
Bank, a national depository financial institution, $250,000 of
which was covered by federal deposit insurance. The remainder was
uncollateralized. IBank is in the process of entering into
repurchase agreements for the funds held in the money market
deposit accounts to mitigate the custodial credit risk associated
with these deposits.
The custodial risk for investments is the risk that, in the event
of the failure of the counterparty (e.g., broker-dealer) to a
transaction, IBank will not be able to recover the value of its
investment or collateral securities that are in the possession of
another party. As of June 30, 2014, SMIF and money market fund
investments were not subject to custodial credit risk. The
investment in federal agency bonds was not subject to custodial
credit risk as of June 30, 2014, because the securities are held by
the Trustees and registered in IBank’s name.
Concentration of Credit Risk. Concentration of credit risk is the
risk associated with a lack of diversification of having too much
invested in a few individual issuers, thereby exposing the
organization to greater risks resulting from adverse economic,
political, regulatory, geographic or credit developments.
The Investment Policy places no limitation as to the percentage of
the portfolio that may be invested in the SMIF, money market funds,
or federal agency bonds. Within the investments permitted by
Government Code Section 16430, the Investment Policy places
limitations on the percentage of deposits and investments that can
be invested with any one entity in order to provide sufficient
diversification by security type and institution to avoid incurring
unreasonable and avoidable risks. As of June 30, 2014, the
investment in Federal Home Loan Bank was 13% of its total
investments and was the only investment in any one issuer (other
than money market funds and the Surplus Money Investment Fund) that
represented 5% or more of total investments.
Foreign Currency Risk. Foreign currency risk is the risk that
changes in exchange rates will adversely affect the fair value of
an investment or a deposit. The Government Code does not allow
investment in foreign currency.
4. PLEDGED LOANS RECEIVABLE
Pledged Loans receivable consists of Loans that were pledged by
IBank to the 2008 and 2014A ISRF Program Bond Series Indentures
(Series-Pledged Loans) and Loans that were pledged to the Master
Indenture related to the 2008 ISRF Program Bonds (Master Pledged
Loans) until all ISRF Program Bonds mature in 2043. The principal
and interest payments received during the fiscal year from the
Series- Pledged Loans are paid to the respective Trustees in
amounts and at times sufficient to make the semi- annual debt
service payments on the ISRF Program Bonds as they become due.
Principal and interest payments from Master-Pledged Loans are also
paid to a Trustee and are available for repayment of the 2008 ISRF
Program Bonds, if needed.
33
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
4. PLEDGED LOANS RECEIVABLE (Continued)
For the 2013-14 fiscal year, the principal and interest payments
received from Series-Pledged Loans were $14,522,588 and represented
67% of all pledged Loan repayments received. The debt service
payments on ISRF Program Bonds for the fiscal year was $9,387,603,
resulting in a bond debt coverage ratio for the fiscal year of 1.55
times. The total principal and interest remaining to be paid on the
ISRF Program Bonds is $208,877,258.
5. REVENUE BONDS PAYABLE
On February 6, 2014, IBank issued $95,960,000 in ISRF Program Bonds
with interest rates ranging from 2.00% to 5.00%. The net proceeds
of the issuance were $108,930,583, including a $13,385,446 premium
and after a payment of $414,863 in underwriting fees. A portion of
the proceeds, $82,184,703, was used to advance refund $78,440,000
of outstanding 2004 and 2005 ISRF Program Bonds with interest rates
ranging from 2.00% to 5.00%. These proceeds were deposited in an
irrevocable trust with an escrow agent to pay the future debt
service on the refunded bonds. As a result, the 2004 and 2005 ISRF
Program Bonds are considered defeased and the liability for those
bonds has been removed from the Statement of Net Position. The
remaining proceeds were used to fund ISRF Program Loans that were
made in anticipation of the issuance of the 2014 ISRF Program
Bonds.
The reacquisition price (amount placed in escrow to repay the 2004
and 2005 ISRF Program Bonds) exceeded the net carrying amount of
those bonds by $896,045. This loss on the bond refunding is
reported as a deferred outflow of resources on the Statement of Net
Position and will be amortized over the remaining life of the
refunded bonds. IBank refunded the 2004 and 2005 ISRF Program Bonds
to reduce its debt service payments by $19,644,345 over the next 20
years and to obtain an economic gain of $8,296,896 or 10.58% of the
refunded par outstanding. The economic gain is the difference
between the present values of the debt service payments on the old
and new debt, discounted at 2.96%.
At June 30, 2014, the outstanding balance of the defeased 2004 and
2005 ISRF Program Bonds was $78,440,000. The bonds will be redeemed
on their October 1, 2014 call date.
The following is a summary of bonds payable at June 30, 2014:
Infrastructure State Revolving Fund Revenue Bonds, Series 2008,
issued $48,375,000 bearing 2.60% to 5.00% interest payable
semi-annually, final maturity October 1, 2036 (2008 ISRF Program
Bonds) $ 37,795,000
Infrastructure State Revolving Fund Revenue Bonds, Series 2014A,
issued $95,960,000 bearing 2.00% to 5.00% interest payable
semi-annually, final maturity October 1, 2043 (2014 ISRF Program
Bonds) 95,960,000
Plus: Unamortized Net Premium 12,752,706
Net ISRF Program Bonds Payable $ 146,507,706
34
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
5. REVENUE BONDS PAYABLE (Continued)
The following is a schedule of the debt service requirements for
the 2008 ISRF Program Bonds as of June 30, 2014:
Year Ending Total June 30 Principal Interest Debt Service
2015 $ 2,360,000 $ 1,614,004 $ 3,974,004 2016 2,455,000 1,530,593
3,985,593 2017 1,595,000 1,462,481 3,057,481 2018 1,655,000
1,397,481 3,052,481 2019 1,725,000 1,329,881 3,054,881
2020-2024 9,000,000 5,472,231 14,472,231 2025-2029 8,665,000 1
3,470,972 12,135,972 2030-2034 7,210,000 2 1,614,906 8,824,906
2035-2037 3,130,000 3 231,000 3,361,000
Total $ 37,795,000 $ 18,123,549 $ 55,918,549
1 Principal payments in the amount of $1,165,000 are made from
sinking fund payments for the 2031 term bonds. 2 Principal payments
in the amount of $3,120,000 and $2,475,000 are made from sinking
fund payments for the 2031 and
2036 term bonds, respectively. 3 Principal payments in the amount
of $2,095,000 are made from sinking fund payments for the 2036 term
bonds.
The following is a schedule of the debt service requirements for
the 2014 ISRF Program Bonds as of June 30, 2014:
Year Ending Total June 30 Principal Interest Debt Service
2015 $ 2,640,000 $ 5,227,781 $ 7,867,781 2016 3,515,000 4,452,319
7,967,319 2017 3,630,000 4,326,994 7,956,994 2018 3,705,000
4,180,294 7,885,294 2019 3,860,000 4,009,693 7,869,693
2020-2024 21,455,000 16,904,344 38,359,344 2025-2029 24,200,000
11,295,219 35,495,219 2030-2034 22,060,000 5,025,031 27,085,031
2035-2039 8,970,000 4 1,419,425 10,389,425 2040-2044 1,925,000 5
157,609 2,082,609
Total $ 95,960,000 $ 56,998,709 $ 152,958,709
4 Principal payments in the amount of $4,640,000 are made from
sinking fund payments for the 2039 term bonds. 5 Principal payments
in the amount of $550,000 and $1,375,000 are made from sinking fund
payments for the 2039 and 2043
term bonds, respectively.
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
6. LONG-TERM OBLIGATIONS
The changes in long-term obligations for the year ended June 30,
2014 were as follows:
Current Balance Balance Portion
June 30, 2013 Increases Decreases June 30, 2014 June 30, 2014
Revenue Bonds Payable:
2004 ISRF Program Bonds $ 40,525,000 $ - $40,525,000 $ - $ -
2005 ISRF Program Bonds 41,360,000 - 41,360,000 - -
2008 ISRF Program Bonds 40,095,000 - 2,300,000 37,795,000
2,360,000
2014 ISRF Program Bonds - 95,960,000 - 95,960,000 2,640,000
Unamortized Net Premium 1,703,680 13,385,446 2,336,420 12,752,706 -
Total Revenue Bonds Payable 123,683,680 109,345,446 86,521,420
146,507,706 5,000,000
Net Other Postemployment Benefit Obligation 948,000 270,000 -
1,218,000 -
Compensated Absences Payable 377,705 165,798 366,821 176,682
14,278
Total $125,009,385 $109,781,244 $86,888,241 $147,902,388
$5,014,278
36
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
7. CONDUIT BOND INFORMATION AND DEBT OBLIGATIONS
IBank has served as the conduit bond issuer for many private,
nonprofit and governmental entities. Conduit bonds are a limited
obligation of IBank payable solely from the pledged revenues of the
conduit borrower. As such, the balance of outstanding conduit bonds
is not reflected in the financial statements due to the conduit
bond borrower’s repayment pledges for those bonds.
Conduit Bond information 1:
Fees earned from 7/1/13 thru 6/30/14: o Application Fees $ 18,000 o
Issuance Fees $ 429,782 o Annual Fees $ 68,500 o Other $
50,007
Conduit Bond Support Operating Expenses $ 840,302 2
Amount of conduit bonds authorized but unsold as of 6/30/14 $
2,700,000 Amount of conduit bond debt issued from 7/1/13-6/30/14
$735,423,063 Amount of conduit bonds outstanding as of 6/30/14 $
4.5 billion 3
Number of conduit bonds transactions outstanding as of 6/30/14
118
1 This information is provided pursuant to Government Code section
5872(a). 2 Conduit Bond Support Operating Expenses include expenses
such as salaries and benefits, administrative services, rent,
utilities, travel, training, equipment and external services. 3
Includes bonds issued by the former California Economic Development
Financing Authority, which were assumed by
IBank pursuant to Chapter 4, Statutes of 1998, bonds issued by the
California Consumer Power and Conservation Financing Authority,
which were assumed by IBank pursuant to Resolution 04-37 adopted by
the IBank Board on September 28, 2004, and excludes conduit bonds
that were issued by special purpose trusts created by IBank.
8. RETIREMENT PLAN
Plan Description
All of the employees of IBank participate in the California Public
Employees’ Retirement System (CalPERS), which is included in the
State of California’s Comprehensive Annual Financial Report as a
fiduciary component unit. CalPERS administers the Public Employees’
Retirement Fund (PERF). PERF is an agent multiple-employer defined
benefit retirement plan. Departments and agencies within the State
of California, including IBank, are in a cost-sharing arrangement
in which all risks and costs are shared proportionately by
participating State agencies. CalPERS issues a publicly available
financial report that includes financial statements and required
supplementary information for this plan. This report is available
online at www.calpers.ca.gov.
The PERF provides retirement benefits based on employees’ years of
service, age, final compensation, and benefit formula. Vesting
occurs after five or ten years of credited service depending on the
benefit tier. Employees who retire at or after age 50 or 52,
depending on the retirement formula, with five or more years of
service are entitled to a retirement benefit payable monthly for
the remainder of their lives. In addition, the PERF provides
benefits for death, disability, and survivors. All employees are
also covered by group term life insurance. Benefit provisions and
other requirements are established by State statute.
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
8. RETIREMENT PLAN (Continued)
The California Legislature passed and the Governor signed the
“Public Employees’ Pension Reform Act of 2013” (PEPRA) on September
12, 2012. PEPRA contained a number of provisions intended to reduce
future pension obligations. PEPRA primarily affects new pension
plan members who are enrolled for the first time after December
2012. The financial impact will be gradually realized as total
pension costs and the employer share of those costs decrease.
Funding Policy
Benefits are funded by contributions from members and participating
State agencies and by earnings from investments. Member and
employer contributions are a percentage of applicable member
compensation. Member contribution rates are defined by State
statute and employer contribution rates are determined by periodic
actuarial valuation or by statute. The actuarial methods and
assumptions used are those adopted by the CalPERS Board of
Administration. For the year ended June 30, 2014, the State elected
to use higher required employer retirement contribution rates for
State Miscellaneous Tier 1 and State Miscellaneous Tier 2 active
members than the ones adopted by CalPERS. The State elected these
higher rates to redirect savings that resulted from increases in
member contribution rates for various State employees that became
effective July 1, 2013.
To fund the retirement benefits of its employees, IBank is required
to contribute to PERF at the contribution rates adopted by the
State. The required employer contribution rates for the year ended
June 30, 2014 were 21.203% for State Miscellaneous Tier 1 and
21.355% for State Miscellaneous Tier 2. The contribution
requirement for the year ended June 30, 2014 was $288,889. The
employee contribution rate for State Miscellaneous Tier 1 is 8% of
salary above $513 per month for employees covered by social
security or 9% of salary above $317 per month for employees not
covered by social security. Effective July 1, 2013, the
contribution rate for State Miscellaneous Tier 2 is 1.5% of salary
with 1.5% increases each year up to 50% of normal cost. The funded
status of PERF is reported at a statewide level in the State’s
Comprehensive Annual Financial Report available on the State
Controller’s Office website at www.sco.ca.gov.
The following table shows the required contributions (annual
pension cost) and the percentage contributed for the past three
fiscal years, allocated to the CIEDB Fund:
Percentage Period Annual Pension of APC Ended Cost (APC)
Contributed
June 30, 2012 $272,703 100% June 30, 2013 291,911 100% June 30,
2014 288,889 100%
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
9. OTHER POSTEMPLOYMENT BENEFITS (OPEB)
The State also provides postemployment health care and dental
benefits to its employees and their spouses and dependents, when
applicable, through a substantive single-employer defined benefit
plan to which the State contributes as an employer (State’s
Substantive Plan). The design of health and dental benefit plans
can be amended by the CalPERS Board of Administration and the
California Department of Human Resources, respectively. Employer
and retiree contributions are established and may be amended by the
Legislature. The employer contribution for health premiums
maintains the average 100/90 percent contribution formula
established in the Government Code. Under this formula, the State
averages the premiums of the four largest health benefit plans in
order to calculate the maximum amount the State will contribute
toward the retiree’s health benefits. The State also contributes 90
percent of this average for the health benefits of each of the
retiree’s dependents. Employees vest for this benefit after serving
10 years with the State. With 10 years of service credit, employees
are entitled to 50 percent of the State’s full contribution. This
rate increases by 5% per year and with 20 years of service, the
employee is entitled to the full 100/90 formula. IBank participates
in the State’s Substantive Plan on a cost sharing basis. IBank
recognizes the costs of providing health and dental insurance to
annuitants based on the required contribution, which is actuarially
determined, and funded on a pay-as-you-go basis. The State
Controller’s Office obtains an annual actuarial valuation of the
State’s Substantive Plan which can be found on its website at
www.sco.ca.gov.
A portion of the State’s postemployment benefit costs have been
allocated to the CIEDB Fund as follows:
Annual required contribution $ 411,000 Interest on net OPEB
obligation 59,000 Adjustment to annual required contribution
(52,000) Annual OPEB cost (expense) 418,000 Contributions made
(148,000) Increase in net OPEB obligation 270,000 Net OPEB
obligation – beginning of year 948,000 Net OPEB obligation – end of
year $ 1,218,000
The annual OPEB cost, the percentage of annual OPEB cost
contributed to the plan, and the net OPEB obligation for the past
three fiscal years, allocated to the CIEDB Fund, were as
follows:
Percentage of Year Annual Annual OPEB Net OPEB
Ended OPEB Cost Cost Contributed Obligation
6/30/12 $239,000 36% $865,000 6/30/13 127,000 35 948,000 6/30/14
418,000 35 1,218,000
Additional disclosure detail required by GASB Statement No. 45,
regarding other postemployment benefits is presented in the State’s
Comprehensive Annual Financial Report for the year ended June 30,
2013, which is the latest available on the State Controller’s
Office website at www.sco.ca.gov.
ENTERPRISE FUNDS OF THE CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE FISCAL YEAR
ENDED JUNE 30, 2014
10. COMMITMENTS
In June 2003, the Board approved a preliminary loan guarantee
commitment for the Imperial Irrigation District (IID). The
preliminary loan guarantee commitment established a conditional
obligation to guarantee a future issuance of revenue bonds by IID
(IID Bonds) for the purpose of financing a water supply project
(IID Guarantee). During the 2003-2004 fiscal year, IBank
transferred $20 million from the CIEDB Fund to the Guarantee Trust
Fund in conjunction with the preliminary loan guarantee commitment
for the IID. In October 2010, the State Legislature enacted Senate
Bill 856 (SB 856) that directed IBank to deposit a specified amount
required for the IID Guarantee in a reserve account within the
Guarantee Trust Fund. SB 856 further directed that this IID
Guarantee amount be held for the benefit of bondholders of
potential IID Bonds. At June 30, 2014, the required IID Guarantee
amount was on deposit in a reserve account within the Guarantee
Trust Fund, and no IID Guarantee or IID Bonds have been approved or
issued.
In May 2014, the Board approved two Loans totaling $11,450,000. As
of June 30, 2014, neither Loan agreement was fully executed;
however, once a borrower has executed an agreement, IBank is
obligated to fund the Loan.
11. CONTINGENCIES
One borrower with three Loans pledged to the 2008 Master Indenture
declared a fiscal emergency on July 18, 2012, and filed a Chapter 9
bankruptcy petition on August 1, 2012. On August 28, 2013, the
federal bankruptcy court judge ruled that the borrower was eligible
for Chapter 9 bankruptcy protection. As of June 30, 2014, the
bankruptcy case was st